[tschwimmer]

The metaphor of early startup employee as investor seems really smart at first but is ludicrous in reality.

It is physically impossible to choose a startup like a VC because you cannot diversify your portfolio like they can. VCs can sprinkle (relatively) small amounts of money across dozens or hundreds of startups. If one fails then the impact to the portfolio is negligible. In fact, VCs expect that most of their portfolio probably won't pan out.

Good luck diversifying as an employee. Working part time at even 2 startups is obviously laughable.

If you're in it for the money, working at a startup is probably not for you. It really is akin to gambling. There may seem to be more information available than gambling, but there is so much unknown and hidden information it's damn near impossible to make a 'rational' decision.

That's not to say you should never work at a startup. Startups are often great learning opportunities because you usually have both broad and deep scope of responsibility. There's also often better alignment between management and employees because people tend to be working stuff that is materially relatable to the bottom line. It can also be a career accelerator if the company grows headcount rapidly and you suddenly become a 'senior person'™. YMMV.

[econner]

The best part is stock options. Not only are you not diversified, now you get to concentrate your portfolio by buying stock in the company that provides your income.

Stock options: for concentrating your income and your investments when you're excited and biased.

[JohnFen]

Decades of experience has taught me that stock options are essentially wallpaper. Sure, if a company wants to give me options, I'll take them -- but they are in no way a substitute for real compensation, and I won't accept them in lieu of something real.

That said, if a startup is doing something that really turns my gears and I like the company, then I'm absolutely willing to work for less pay in order to be a part of that.

[deanmoriarty]

Something I never understood about this attitude ("... then I'm absolutely willing to work for less pay ...") is: why there are almost no examples of such behavior in other highly paid professions, such as physicians or lawyers? Very rarely you'll find physicians saying "I really want to become a brain surgeon, I'll happily take 40% less than my market rate". You'll certainly find physicians doing volunteering, but that's another thing.

In software instead, that's incredibly common: several of my coworkers (late stage private company) are in mostly for the thrill of working on our technology since we operate in some interesting niche, and I know for a fact they are paid much less than me (30%+), even if they have a bigger impact than me on the company (and they are also older, with more experience!).

It's so common that many times employers use it at their advantage, by preferring people that can be sold purely on the tech rather than the tech AND the market rate for the position.

To me, both the financial aspects and the technical challenges must be absolutely satisfied in order to join a company. Maybe I'm too practical because I'm not a trust fund kid and grew up dirt poor, so I know that in my limited ~20y engineering career (assuming ageism) I need to make enough so that I will be able to retire comfortably, while making sure I work on stuff that stimulates me so I can give my very best.

[the_jeremy]

I think there are. Teachers (pretty much as a whole) and public defenders seem to fit here.

I know multiple photographers whose passion is landscapes/nature and only grudgingly supplement that income with weddings/portraits.

[deanmoriarty]

With regards to teachers or photographers, that's not a fair comparison in my opinion: in those cases, low wages are mostly dictated by high supply vs low demand, so from an economic point of view it "makes sense". That's much different than software engineering or medicine, where there is a scarcity of supply (and the only reason why software salaries are in the 6 figures).

In other words, teachers are not willingly giving up a portion of the compensation that they could otherwise be making doing the same job somewhere else. In software instead, that happens ("Oh, you work on FOO v2.0, I'll happily take 40% less than what I could otherwise be making doing this job in another company").

I don't know about public defenders, you might have a point there.

[apersona]

From my perspective it looks like a good amount of teachers decided to give up a portion of the compensation earlier (i.e. they gave up good pay not when they're looking for another job in an industry they're already in, but they decided to give up good pay upon joining the industry).

It's like how artists/writers/game developers/etc. decide to go into their field even though they know that they could be making much more money in any other field.

[BigJono]

It's still just supply and demand. Sexier products draw more candidates. The only reason you're taking 40% less to work on something cool is because if you don't, someone else will.

Most people eventually have to decide whether they want to make 150k writing CRUD apps or 90k writing algorithms.

[joe3774]

doctors without borders unusually have a very well paid job and do the free consultations on the side, like writing code and publishing it on github

[JJMcJ]

Also a physician working with Doctors Without Borders doesn't do it for a chance to get really rich.

[halbritt]

"Less pay" generally entails something that's still reasonably lucrative. One could potentially make 20% more at one or two FAANG companies. Frankly, the big difference is in the RSUs. It's not unusual to see $100k/yr RSUs going to a senior engineer at one of them whereas at a startup, the equity is most likely worth nothing.

Basically, startups are a terrible place to work. I wouldn't recommend them to anybody. However, there are some folks, myself included, that love them.

Tech or IT or whatever you call it tends to happen at a glacial pace in structured organizations. Most IT projects fail. Most folks don't care. They want to come to work, do their thing, potentially excel at their thing, go home at the end of the day, and enjoy their life. At a startup, someone that's eager to contribute can really make a difference. One inspired idea has the potential to really move the needle when it comes to the success of the business.

[sk5t]

How about: Doctors Without Borders? Docs who enter general practice in underserved areas rather than metropolitan dermatology? Legal pro bono work, or most prosecutors?

[JJMcJ]

They forgo some income, or work for free.

But for public service, not because there is a 0.1% chance they'll get a lot of money.

[deanmoriarty]

You might have a fair point. I am, however, empirically convinced (but have no data) that the examples you are quoting are a very small portion of their respective professional market population, whereas, always empirically, I'd say that the amount of software professionals who willingly choose to be underpaid purely because of their attraction to some kind of work is much much higher, probably in the 30%+.

[lmeyerov]

Someone doing pediatrics might have been better off skipping med school and being a nurse practitioner, or a taxi programmer. Or when going through it, specializing instead in dermatology. Now imagine your town without any pediatricians and GPs and emergency staff ;-)

[lmeyerov]

Doctors pick specialties and the balance of $, time, stress, location, marvel, and giving back all factor in. Think city dermatologist vs small town pediatrition.

Source: married to an md phd, meaning ~half the potential salary is both forgone and that time is used to be in public labs solving cancer. Hours still stink tho and every day is life and death, so aggrieved programmer discussions of hours, burnout, compensation, and ability to own equity come off sounding similar to how bankers do. Clearly real for those living it, but odd from the outside.

[qqqwerty]

There are a few factors that you are overlooking. A lot of startups (and small companies) aren't on the 'SV Unicorn Track', particularly so for startups focused on 'hard' problems. Energy, biotech, aerospace, etc.. These types of startups often have to cobble together funding from a variety of sources (grants, strategic partnerships/investments, niche VC firms). The pay is lower because it has to be, funding is limited and developing the product (and sometimes just a prototype) can take years, so there is little to no revenue.

Something to consider as well, is that while the salaries might be lower, they are often not that far off from what one would make in their respective industry. So someone working at a biotech startup will probably be making a lot less than a FANNG engineer, but would probably be pretty competitive with their peers in 'BigBiotechCo'.

And the other thing to consider is that engineers, and in particular programmers, tend to be pretty bad negotiators. Its possible that your co-workers would gladly take a 30% raise if they knew they were making that much less. I highly doubt they are 'trust fund kids' (those folks tend to found crappy startups, cause if you are set for life, why would you work for someone else?). And if they are older (as you imply) its also possible they were starting to feel the impacts of ageism in tech, and took a low ball offer as a result. Or perhaps they have saved up enough from previous jobs and just don't care that much if they are maximizing their pay, and are more focused on working on cool things and with non-toxic co-workers!

[JohnFen]

> A lot of startups (and small companies) aren't on the 'SV Unicorn Track'

Yes. My willingness to work for less pay if the work is interesting enough only applies to those sorts of companies. The stereotypical SV-style business has no appeal to me regardless of what sort of work is involved. Been there, done that, learned my lesson!

[solveit]

The most obvious example is academic research. Many engineers, doctors, lawyers, and economists take massive pay cuts to work in an academic environment.

[shalmanese]

Plenty of lawyers quit Big Law to work in human rights law or as public defenders because they find the work more meaningful. All lawyers are also required to do pro bono work and different lawyers and some treat it as pro forma but many go above and beyond because they feel the work is important.

[JohnFen]

> I'm not a trust fund kid and grew up dirt poor

This applies equally to me.

Here's the thing -- a job that isn't fun and interesting is a job I can't tolerate regardless of how much it pays. Life is too short to suffer on a daily basis.

But I do have a minimum amount of income that I can tolerate as well. I have to earn enough money to live, after all. How much the minimum is depends on the cost of living in my area.

[deanmoriarty]

But does the “enough money to live” include money to cover your future living expenses as well? As I was saying, I plan for a scenario in which I’ll be “forced into obsolescence” in my late 40s due to ageism, and won’t be able to claim any social security benefits due to the massive deficit in federal budget.

Hence, what I really strive to make now is actually 3-5X my cost of living expenses every year, so I can ensure a decent retirement down the road.

Based on that math, I really can't afford the luxury of taking a job that will just cover my yearly expenses. In my case, I really have to go for jobs where swes make $300-400k/yr, and I live pretty frugally myself (I spend 60k/y post tax in the Bay Area). I don’t think it’s safe to assume software engineering is a career that you can keep up until your 60s, unlike teachers for example, so you have to plan for it.

I’ve seen several people actually employ this logic and justify to themselves a 120k software job at a cool Bay Area startup, because it fully covers their living expenses in the Bay, despite not letting them save even one single dollar for retirement. I think that’s very irresponsible though, and they’re in for a sad surprise when they’ll discover in their late 40s that employers don’t consider them as hireable as they once were, and now they have to drive Uber to not become destitute (not that there’s anything wrong with that, but it’s hardly a great outcome).

[JohnFen]

> But does the “enough money to live” include money to cover your future living expenses as well?

I've covered that through savings over the decades. But, honestly, I don't expect that I'll ever retire anyway.

> I plan for a scenario in which I’ll be “forced into obsolescence” in my late 40s due to ageism

That's not inevitable. I'm in my 50s and am in as much demand as I ever have been. The key (at any age) is that you have to keep your skillset up to date.

Not all companies want experienced people, but companies who strongly prefer younger employees do so because they know they can take advantage of them, and so aren't the sorts of companies I'd be willing to work for anyway.

> In my case, I really have to go for jobs where swes make $300-400k/yr.

Yow! You must live in an area with an insane cost of living! If that were me, I'd move to somewhere more reasonable. Software engineering jobs are everywhere.

[fgonzag]

If Google or MS give you options, or RSUs, or whatever, they are essentially cash. You'll be able to liquidate them at market price as soon as you vest. So in those companies stock options are a real form of compensation.

For startups whose stock has 0 actual value in a market, then yeah stock options are worth nothing.

[alex_young]

Stock Options are just that - an option to buy a share of stock at a future date. They are a bet on a future outcome which contains lots of risk.

Restricted Stock Units are cash. They are new shares issued to you with restrictions on exercising them. Once they vest, there is no value in not selling them immediately. The tax consequences are the same if you hold them, and you gain the value of diversification by selling.

The above should tell you something about the calculation you are espousing. Yes, the very risky asset called stock options is much less likely to hold any future value. The risk implied should also tell you that for a rare good pick with lots of well managed influence to the outcome, you can succeed with fantastic gains where you cannot simply by holding public shares.

YMMV. The only way to win the startup lottery is to work very hard to influence the outcome. I can't think of any other lottery like that.

[sokoloff]

> The tax consequences are the same if you hold them

The gains that occur after vest-and-release are capital gains. Capital gains for assets held over a year are much lower than ordinary income rates for most people receiving RSUs. (It's still reasonable advice to diversify in the typical case.)

[alex_young]

I think I'm either misreading your comment, or there's a misunderstanding here.

When RSUs are issued, they typically appreciate in value due to either an increase in share price or a discount or both.

When the RSUs vest, one of 2 things happens: either the number of shares is reduced by a sum equivalent to pay income taxes, or (more rarely) income taxes are paid by the recipient later at tax time. In either case, the shares didn't exist in the recipient's account before that vesting date.

If the shares are sold, those funds can be used to buy other shares if desired. If they are held, they are just normal shares in that company. In either case, they appreciate as capital gains instead of income, starting with the point in time when they were either purchased or vested whichever the case may be.

[fhbdukfrh]

I agree with you, and this was my initial response when i started reading the post.

VCs also get far more information about the company and can demand way more control. How many employees of a startup get a board seat, even if you're non-founder employee #1?

Even those diversified portfolios aren't going to have huge returns in most cases.

I think the lesson is that if your value proposition is exchanging your skills and time for money (ie, an employee) you can't parlay that into startup style returns without essentially winning the lottery. If you can pick the next unicorn for employment purposes don't waste your talents on actually being an employee

[danenania]

On the other side, as an early employee you can have a much bigger impact on the odds of success than an investor. If you think a company has huge potential, but it's missing X/Y/Z, and you're an expert in X/Y/Z, then you have both a unique insight and unique leverage to make a success out of something that might not have been without you. Looking for situations where you make the difference is perhaps one way to have the whole thing feel like less of a lottery.

[tschwimmer]

I think this is a good point. If you are the ‘secret sauce’ than you may have an edge over an investor. There is perhaps the question of how you know that the company has huge potential with any confidence but I can think of a number of situations where it may be generally indicated. You should also command a stiff premium for catalyzing the company’s success. =)

[Alex3917]

> It is physically impossible to choose a startup like a VC because you cannot diversify your portfolio like they can.

As an employee though you can contribute your sweat equity on a daily basis, rather than needing to make your contribution upfront. So if you figure out the startup is a scam after day 3 of working there full time, you're free to quit immediately with basically no sunk cost. If investors could drip out their cash on a daily basis then most probably wouldn't put in the work to be fully diversified. So yeah, it's a difference, but I think it's a little overstated if you're just comparing the raw numbers of startups each group has equity in.

What I think is a bigger difference is that employees don't have to worry about IRR. If as an employee it takes you an extra two years to get to liquidity, that makes basically zero material difference in your quality of life. Whereas as a professional investor that can destroy your business. On that basis I think this piece may overstate the value in looking for signal. As an investor, placing your bet on someone who is going to be successful but not for another couple years is basically the same as a loss. But that's not really true as an employee.

[tschwimmer]

I don’t agree with your point about employees being able to ‘get their money out.’ If you have short stints at many startups I am young to see that as a serious red flag as a hiring manager. You can do it at one place but I think even if you do it twice in succession it’s going to suggest a pattern. Disclaimer: I’m not a software engineer so it may be less impactful than I think.

RE: your point about IRR, I also don’t fully agree. Yes it’s bad when when you don’t show return for many years as an investor but as someone who was personally waiting for a prior employer to go public I can assure that a difference of a year or two is not ‘zero material difference’ in my quality of life.

[mlthoughts2018]

Why would it be a red flag? Many companies have horrible cultures and dysfunction and you only get to see it after starting full-time. It’s very common to realize you are not compatible with the particular dysfunction of a certain job and need to leave even just after a few months just for basic reasons of taking care of yourself. This can easily happen at multiple consecutive jobs.

I’ll even go further and claim that in tech and especially in start-ups, hiring is deliberately deceptive. As a candidate you are at a severe information asymmetry disadvantage when you have to decide to join, and companies very often manipulate that situation to bait and switch on overqualified candidates, lie about or hide financial details, emphasize the wrong things to create halo bias in your decision making, etc.

Given just how egregiously bad companies are, just in general behavior, I don’t see why it’s surprising or controversial or “a sign” of anything to see a job history with a lot of short stints.

In fact, if a hiring manager or HR staff looks at a resume with short stints as a bad thing, that actually seems more like an indicator that the company is bad. They are thinking, “this person doesn’t patiently swallow company bullshit for keeping up appearances on the resume... they’ll never stick it out in our horribly toxic culture...” and it’s very telling that companies think this way instead of fixing their bullshit and being realistic about candidates needing to hop between jobs when company culture is bad.

[fizx]

It's actually easier to "invest" as an employee than as a VC. VC's have to wait until the next round, and have to compete with other VCs.

As a potential employee, you can see a company wildly succeeding (twitter in 2009, uber in 2012-13, slack, github, etc) and yet they will have <200 employees and their stock options will be granted at a 409a valuation around ~100million. Its a pretty reasonable bet at that point.

You will hit some underperformers/duds (coinbase? bird?), but you will have worthwhile stock options a good chunk of the time.

[tschwimmer]

If this is true why not just be a VC? You could pick all these unicorns at a great value. Even if you don’t put any of your own money in the fund you will make vastly more on the fund fees than you would have as even CTO.

I think you’ll find that consistently picking unicorns is essentially impossible across a long time frame.

[fizx]

If any VC could have bought $TWTR at a $280MM cap in 2010 they would have. Only employees got that deal. Twitter was already a unicorn, but the internal paperwork hadn't caught up yet.

It's arbitrage, not clairvoyance.

[sbilstein]

Investors spend all day hearing startup pitches from companies who would gladly accept a check from them.

Engineers spend a grueling month or two getting onsite offers from maybe 8 companies at the most and one or two offers.

Agree 100%, a very misleading metaphor.

[xivzgrev]

Came to say this.

No one can predict with certainty which startups will fail and which won’t. If someone did there would be just one VC firm that grossly outperformed everyone else. The truth is you get the smartest people out there, make the most careful bets you can, and you still lose or break even 9 out of 10 times.

Anyone who is joining an early stage startup primarily to get rich has got their eye on the wrong prize. Join because you like the early stage craziness. Join because you care about the mission. Join to learn. If you want to get rich, work at Fang for 10 years. That’s a lot more certain.

[throwaway9128]

Even if you are not in it for the money, joining a big company gives you good income right away. Speaking from experience, the quality of life change when you don't have to worry about daily expenses is enormous. Being able to buy high quality groceries, eating out when you want to, spending time/money on hobbies, etc. can improve quality of life significantly. Besides these selfish reasons, it's also possible to donate a much higher percentage of your income for good causes.

Between my wife and I (both software engineers), we have played this VC startup game 5 times. Never again.

[imh]

That's missing the point. You can't get the same deal as an investor, true, but you can still do the due diligence they do. Or at least you should try to as much as you can.

[tschwimmer]

The entire premise of VC investment is predicated on diversification. VCs wouldn’t do diligence if they could only invest in one startup. They wouldn’t exist.

[gaius]

Startups are often great learning opportunities

This isn’t really true. The experience you can only get at a startup is learning to work with VCs, the board, early strategic partners and so on. This will be dangled in front of you like a carrot but as a mere employee you will never get meaningful exposure here. Unfortunately, like “dilution”, this is something that founders hope you don’t know so they can exploit you.